Alphabet (GOOGL) Becomes Berkshire’s Third Largest Holding, Is It Fully Priced?

Alphabet (GOOGL) is back in focus after Berkshire Hathaway, now led by CEO Greg Abel, reshaped its portfolio by trimming Bank of America and making Alphabet its third largest holding.

Alphabet’s share price has eased over the past month, with a 30 day share price return of down 5.93% and a 90 day share price return of down 6.68%. This comes even as the one year total shareholder return of 58.97% and three year total shareholder return of 148.94% point to strong longer term momentum that now meets fresh questions about AI spending, talent departures and execution on delayed Gemini models.

Compare how other AI focused companies are priced relative to Alphabet by running the hand picked 55 AI infrastructure stocks while this theme remains front and center for the market.

Alphabet now trades near US$335 after a recent pullback, and heavy AI spending has moved to the foreground. Do those risks outweigh a valuation that some investors view as restrained for a company of this scale?

Most Popular Narrative: 65% Overvalued

Alphabet closed at $335.02, while the most followed narrative on the stock, built using a detailed valuation model, places fair value at $202.62. That gap sets up a very different story to the recent pullback.

The arithmetic of waiting, which is where this gets uncomfortable. Suppose the middle road is roughly right and you buy today anyway. What do you actually collect? On the middle road the shares are worth $272.54 in three years, $313.86 in five, and $395.49 in ten. Against $356.13 today, that is down about twenty four percent, down about twelve percent, and finally up about eleven percent. Read the last column again. Eleven percent in total after a decade. Call it one percent a year, for owning what may well be the best business of this generation, through ten years of headlines and lawsuits and product cycles.

Read the complete narrative.

Alphabet’s narrative leans on detailed forecasts for revenue compounding, profit margins and reinvestment returns. Curious how those moving pieces produce that fair value gap and reshape the long term payoff profile.

Result: Fair Value of $202.62 (OVERVALUED)

Have a read of the narrative in full and understand what’s behind the forecasts.

However, the narrative could be knocked off course if Alphabet’s heavy AI related capital spending fails to earn strong returns, or if regulatory outcomes materially restrict key businesses.

Find out about the key risks to this Alphabet narrative.

Another View On Alphabet’s Value

The user narrative argues Alphabet is heavily overvalued at around $335, yet Simply Wall St’s own DCF model reaches a different conclusion. On this view, Alphabet is trading below an estimated future cash flow value of $446.49, which implies the stock screens as undervalued rather than stretched.

Two disciplined investors can look at the same Alphabet cash flows and reach opposite conclusions. That leaves you with a simple question: Which set of assumptions do you trust more when your own money is on the line, the cautious narrative or the SWS DCF model result, and what would convince you to change your mind next?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Alphabet for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 50 high quality undervalued stocks. If you save a screener we even alert you when new companies match – so you never miss a potential opportunity.

Next Steps

With sentiment on Alphabet split between caution and optimism, this is the moment to look at the numbers yourself and decide where you stand. To weigh both sides of the debate, start with the 4 key rewards and 2 important warning signs.

Looking for more investment ideas beyond Alphabet?

If Alphabet has you thinking harder about valuation, risk and long term payoff, do not stop there. Let the data guide your next move with a broader watchlist.

Use the Simply Wall St Screener to widen your opportunity set with ideas that might fit different goals and risk levels.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include GOOGL.

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